Investors fixed on Macron’s victory are vulnerable to the Le Pen shock

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By Albertina Torsoli and Greg Ritchie

(Bloomberg) —

A shake-up in the French presidential election would likely upend markets betting on Emmanuel Macron to secure a second term.

If nationalist and eurosceptic Marine Le Pen overthrows the incumbent, European assets could face a sell-off comparable to the euro crisis or Brexit, according to market participants.

France votes on the different visions of Macron and Le Pen

France’s risk premium over Germany would more than double to more than 100 basis points, according to Mizuho International Plc. Stock markets would fall rapidly by at least 5%, with a “significant decline” for credit markets as well, according to Barclays economists.

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“It would be a terrible day for the markets,” said Ariane Hayate, fund manager at Edmond de Rothschild Asset Management in Paris. “The first impact would be on the yield of 10-year French bonds, which could explode.”

Investors were relaxed ahead of Sunday’s vote, with French stocks and bonds alongside the euro supported by polls showing a widening gap between the two contenders since the first round. Markets took comfort when politicians left and right backed Macron and Le Pen failed to deliver a heavy blow in Wednesday’s debate.

This leaves investors vulnerable to a shock, with repercussions expected to extend to most sectors of the economy. Companies in which the French state has stakes, such as Air France-KLM and Renault SA, could face “full-fledged” government intervention, while public utilities such as Engie SA and Electricité de France SA would be “at the center of energy policy conflicts”. “, according to Pierre-Yves Gauthier, director of strategy at Alphavalue.

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Toll road operators Vinci SA and Eiffage SA would be exposed to Le Pen’s commitment to nationalize the country’s motorways. Caterers could face higher costs due to his vow to ensure that at least 80% of food products in cafeterias come from France.

Labor Press

Le Pen’s plan to control immigration could hurt industries with labor shortages, such as hospitality and construction, according to Alexandre Baradez, chief market analyst at IG France. It could also affect luxury giants such as Louis Vuitton owner LVMH, which are among the main growth drivers in the CAC 40 index.

Lenders Societe Generale SA, Crédit Agricole SA and BNP Paribas SA could be impacted as they have benefited from closer integration into the European Union. Macron said the vote would be a referendum on the EU, on Franco-German relations and on climate policies.

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“A victory for Le Pen would destroy the beating heart of Europe,” said Matteo Brancolini, fund manager at BPER Banca SpA in Milan. “A European Union in ruins could in turn lead to a collapse of the markets.”

While Le Pen has dropped calls as recently as 2017 to abandon the euro, she still argues for a referendum on the constitution to make French law superior to EU rules. She wants to reinstate permanent border controls in the Schengen area, which would contradict the law in the bloc and likely lead to retaliation.

“If Le Pen were to win the second round, the negative euro market reaction is likely to be strong,” said Daria Parkhomenko, strategist at RBC Capital Markets. “Voter turnout and the extent of Macron’s ability to mobilize an anti-Le Pen vote outside of his core supporters remains the wild card.”

Even if Le Pen does not win, a close vote could trigger volatility ahead of the June legislative elections and make it more difficult for Macron to implement his program.

“It would be a huge step backwards for Europe and a big step backwards in what was built gradually during the Covid, which is European solidarity,” said Ludovic Labal, manager of the Europe Quality Strategic Fund at Eric Sturdza Investments in Paris. “The consequences of that would be much more damaging and would impact the territory of Europe a lot over time, even if not immediately.”

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